By Caroline Valetkevitch
NEW YORK (Reuters) - Speculation that the Bank of Japan could effectively start paying banks to borrow its cash caused the yen to tumble on Friday, while U.S. stocks dropped on disappointing earnings reports from some top companies.
Shares of Google's parent, Alphabet, dropped 5.9 percent to $733.81, a day after it missed Wall Street targets for first-quarter profit and revenue, and shares of General Electric also were down following results.
A Bloomberg report that Japan's central bank might go further with negative interest rates caused the U.S. dollar to hit its highest level against the yen in nearly three weeks, rising more than 1.7 percent to 111.42 yen.
If the BOJ were to apply its negative rate policy to bank loans, it would allow the central bank to cut its deposit rates deeper into negative territory without acting as a headwind for the nation's banks, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc in Washington.
"It gives the Bank of Japan more room to cut rates deeper into negative territory, and that's what the yen is reacting to," Esiner said. The Bank of Japan meets next week.
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Nasdaq led losses in U.S. stocks, falling more than 1 percent. Microsoft was down 7 percent also after it reported results late Thursday.
The Dow Jones industrial average was down 59.72 points, or 0.33 percent, to 17,922.8, the S&P 500 had lost 8.58 points, or 0.41 percent, to 2,082.9 and the Nasdaq Composite had dropped 68.78 points, or 1.39 percent, to 4,877.10.
The MSCI world stock index was down 0.5 percent, while European shares were down 0.5 percent, weighed down by carmakers.
Daimler said it was investigating its U.S. emissions and PSA Peugeot Citroen said it had been raided by French anti-fraud investigators over its emissions.
U.S. YIELDS NEAR HIGHS
The Federal Reserve also meets next week. Healthy markets and reassuring data over the past month have left many investors wondering whether they might have been too quick in pricing out an increase in U.S. rates this year.
U.S. Treasury yields held near three-week highs as investors focused on the Federal Reserve meeting.
Yields have fallen since the beginning of the year on concerns about weakening U.S. economic growth and on rising volatility in the oil and stock markets, which has led investors to lower estimates that further rate hikes are near.
Benchmark 10-year notes were last down 2/32 in price to yield 1.88 percent, up from 1.87 percent on Thursday.
In the energy market, oil prices jumped on the day and were poised for a third week of gains as market sentiment turned more upbeat amid signs a persisting global supply glut may be easing.
Brent crude futures jumped 2.1 percent to $45.45 per barrel, while U.S. crude was up 2 percent at $44.07.
(Additional reporting by Sam Forgione and Devika Krishna Kumar in New York, Marc Jones in London; Editing by Larry King and Nick Zieminski)